2025 (9) TMI 981 - HC - Income Tax

Immediate release of seized ornaments and books after indemnity bond filed and tax authority confirms no outstanding demand

HC directed respondents to release ornaments and books of account seized during a 1994 search, finding the petitioner had filed the required indemnity ... Seizure of ornaments and books of accounts during the course of search - petitioner submitted that as stated in the reply to the Right to Information applications there is no outstanding demand against the petitioner and, therefore, the ornaments seized during the course of search in the year 1994 be ordered to be released forthwith - HELD THAT:- On a query raised by this Court, it was submitted on perusal of the remarks that the respondents are again requiring the details of the ownership of the ornaments. Be that as it may, the petitioner has already filed the indemnity bond and the affidavits before the respondent authorities as required by them and now there is a reply given by the Joint Commissioner of Income Tax, Range 4(1), Ahmedabad as quoted herein-above that there is no outstanding demand in the case of the petitioner and no proceedings of assessment, penalty or prosecution is pending. Respondents are directed to release the seized ornaments and books of accounts during the course of search in the year 1994 forthwith and compliance report be placed before this Court within a period of one week. ISSUES PRESENTED AND CONSIDERED 1. Whether ornaments and books of accounts seized during search under Section 132 of the Income-tax Act, 1961, in 1994 must be released where there is no outstanding demand and no assessment/penalty/prosecution proceedings pending. 2. Whether payment/settlement under the Direct Tax Vivad Se Vishwas Scheme and consequent orders giving effect thereto eliminate all subsisting demands such that seized property must be returned. 3. What documentary safeguards (affidavit/indemnity, proof of ownership, clarification of identity/status of assessee/HUF/individual) may lawfully be required by the revenue before releasing seized property, and the effect of the revenue's internal verification/online records (including RTI reply) on the obligation to release. 4. Reliefs and timelines appropriate where the revenue has retained seized property despite material showing no outstanding demand and no pending proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Release of seized property where no outstanding demand or pending proceedings Legal framework: Section 132 enables search and seizure; ancillary rules and administrative practice permit retention of seized property pending completion of proceedings. Statutory entitlement to release arises where retention can no longer be justified by any subsisting demand or continuing proceedings. Precedent treatment: No prior judicial authorities were cited or applied by the Court in the judgment; the Court proceeded on the factual and statutory matrix presented. Interpretation and reasoning: The Court treated the RTI reply and online records showing 'no demand outstanding' and 'no assessment, penalty or prosecution pending' as material demonstrating absence of any subsisting statutory basis to retain the seized ornaments and books. Where the foundational reason for retention - an outstanding demand or ongoing proceedings - ceases to exist, continued retention is not justified. The Court noted that the revenue itself, through its communication, acknowledged absence of demands and absence of case records in its office. Ratio vs. Obiter: Ratio - retention of property seized under Section 132 is unjustified and release must follow where there is no outstanding demand and no pending proceedings; the Court's order directing immediate release is dispositive. Obiter - peripheral observations about administrative delays and the desirability of prompt compliance with release requests. Conclusion: The Court directed forthwith release of the seized jewellery and books of accounts and required a compliance report within one week. Issue 2 - Effect of settlement under Vivad Se Vishwas Scheme (VSVS) and orders giving effect thereto Legal framework: VSVS provides for settlement of disputed tax demands on payment and issuance of statutory forms (Forms 3,4,5) and orders giving effect which, when implemented, extinguish the relevant demand to the extent accepted under the scheme. Precedent treatment: No precedent was invoked or distinguished; the Court relied on the administrative record (Forms and orders giving effect) and the Assessing Officer's deletion of demand as establishing that there was no outstanding liability. Interpretation and reasoning: The Court accepted that declarations under VSVS, acceptance in Forms 3/4/5 and subsequent orders giving effect that delete demand operate to remove any subsisting tax demand in respect of the matters settled. Those deletions directly bear on the entitlement to release seized property because they negate the statutory ground for retention. Ratio vs. Obiter: Ratio - settlement under VSVS followed by applicable orders giving effect that delete the demand negates the revenue's power to retain seized property on the ground of outstanding demand in respect of those issues. Obiter - none material beyond the application of that principle to facts. Conclusion: The Court treated the VSVS payments and orders giving effect as terminating the underlying demands and concluded they support immediate release of the seized property. Issue 3 - Documentary safeguards and role of indemnity/ownership proof in release Legal framework: Administrative practice permits the revenue to require documentary proof of ownership and indemnities as safeguards against wrongful release; the power to require reasonable safeguards exists so long as they do not serve as a pretext for indefinite retention after the legal basis for retention has ceased. Precedent treatment: No judicial authority was cited on the precise scope of permissible safeguards; the Court considered the factual sufficiency of the petitioner's submissions (affidavit-cum-indemnity, supporting documents, notices, panchnama, inventory) and the revenue's own online confirmation of no demand. Interpretation and reasoning: The Court observed that the petitioner had furnished the required affidavits/indemnities and clarifications regarding HUF versus individual status, and that the revenue's subsequent communication confirmed absence of demand and non-existence of case records. Given those facts, any further insistence on ownership details could not be used to indefinitely withhold release. The Court balanced the revenue's legitimate interest in safeguards with the petitioner's right to prompt restitution where no statutory basis for retention remains. Ratio vs. Obiter: Ratio - where the owner furnishes reasonable indemnity/affidavit and the revenue's records show no outstanding demand or proceedings, additional documentary requisitions cannot justify continued retention; prompt release is mandated. Obiter - guidance that where queries remain genuine and reasonable, revenue may seek clarification, but must act expeditiously and cannot unduly delay release. Conclusion: The petitioner's indemnities and documentary material, together with the revenue's own online/RTI confirmation of no demands or pending proceedings, sufficed to require release; any further verification could not justify delay and the Court ordered immediate release subject to the provided safeguards. Issue 4 - Appropriate relief and compliance timeline where revenue retains property despite material showing no demand Legal framework: Courts have equitable and supervisory jurisdiction to enforce rights to release of property and to issue directions for compliance within a fixed time where administrative inaction persists. Precedent treatment: The Court did not cite precedent but exercised supervisory powers to prescribe relief and timelines. Interpretation and reasoning: Given repeated requests, RTI responses, production of indemnities and the absence of any outstanding demand, the Court found continued retention untenable and ordered immediate release with a one-week compliance requirement to ensure effective relief. The Court permitted direct service by e-mail and listed the matter for administrative follow up. Ratio vs. Obiter: Ratio - where administrative inaction persists despite the absence of grounds for retention, the Court may direct immediate release and prescribe a short, specific compliance timeline. Obiter - procedural observations on communications and monitoring (e-mail service, listing). Conclusion: The Court directed release forthwith and required a compliance report within one week; matter was stood over to a specific date for administrative follow up.